Last Friday, the defence minister announced no fewer than three shipbuilding initiatives.
First, to the dismay of the Australian Manufacturing Workers Union (PDF) and the indignation of the opposition, the government announced that it would seek bids from Spain and Korea to build two new replenishment vessels for the RAN. The new vessels will replace the ageing replenishment vessel HMAS Success (18,000 tonnes) and the modified commercial tanker HMAS Sirius (47,000 tonnes).
Although the vessels could’ve been built in Australia, it makes sense to go offshore. Not only would a local build require new infrastructure, but the low productivity of local yards would further drive up the cost. Given the benchmark of the AWD, where we’re getting three vessels for the price of four (and counting), the local premium would be upwards of 33%.
Nonetheless, the vessels won’t come cheap. The Spanish spent around A$350 million dollars to build SPS Cantlarbia (19,000 tonnes), while the British have ordered four Tide Class vessels (37,000 tonnes) from Korea for around A$240 million each. Defence’s 2012 estimate for the two vessels (PDF) was above $1 billion, so the taxpayer is at least a couple of hundred million dollars ahead.
The government also announced plans to build more than 20 steel-hulled patrol boats in Australia. These vessels will replace the 22 boats currently operated with Australia’s assistance by 12 Pacific island states under the Pacific Patrol Boat Program. The specification of steel hulls will disappoint Australia’s highly-capable aluminum shipbuilders, but it has probably been justified by the need for robust, easily-maintained vessels.
The local sourcing of the patrol boats looks to be a sop to Australian industry; Asian shipyards could undoubtedly build the vessels much more cheaply. What’s more, the small size and simple design of the vessels will do nothing to nurture the high-end skills needed for future local projects such as the new submarines.
To make matters worse, the Minister has said the project will ‘generate additional work for yards around Australia’. Thus, rather than capturing economies of scale at a single site, work will be shared around the country, resulting in duplicated fixed costs and multiple company overheads. The only consolation is that the slug to the taxpayer from the patrol boats will likely be less than the saving on the replenishment vessels. Viewing the former as the political quid pro quo for the latter, there’s still a net gain.
Without doubt, the most interesting announcement was that the government would ‘bring forward preliminary engineering and design work necessary to keep open the option of building the future frigate in Australia’. Taken at face value, that announcement is difficult to fathom. A replacement for the Anzac frigates has long been planned for the end of the 2020s, and the prevailing assumption has always been that the vessels would be built locally. To achieve that, the 2012 Defence Capability Guide (PDF) planned on first-pass approval around 2019-20 and second-pass around 2022-23. So there’s plenty of time for a local build.
Rather, the option that’s being kept open now is a specific proposal that industry has been pushing quietly behind the scenes. The suggestion is to take the combat system and radar developed for the Anzac frigates by the Australian companies CEA Technologies Australia and SAAB Combat Systems, and to incorporate them into hulls like those currently being built by ASC for the new destroyers.
As well as leveraging the highly successful work done on the Anzac frigate upgrade, the proposal has the potential to provide continuity of work for ASC and its subcontractors. By doing so, it’s argued, hard-won productivity gains on the AWD project (assuming they eventually materialise) can be used to reduce the cost of the future frigates. What could be better—the incumbent firms each get a piece of the pie and the taxpayer saves some money?
But wait a second. On known plans, substantive work on AWD fabrication will end long before it’s necessary to start work on building the Anzac replacements. Even after the two-year delay to the AWD, fabrication will have ended by 2018 and work on the new frigates isn’t due to start until post 2022. So what’s going on?
A hint can be found in Defence’s 2013 Future Submarine Industry Skilling Plan (PDF) (subtitled A Plan for Australia’s Naval Ship Building Industry). Turn to page 170 and look at Scenario 7. There’s the solution: we can achieve continuity by retiring the Anzacs early. The previous government confirmed this when it talked about ‘bringing forward the replacement of the current Anzac Class frigates’.
There’s no way that marginal productivity gains from continuity will offset the cost of recapitalising the frigate fleet four or five years early. While other nations are looking at how to keep their vessels in service for longer, we’re doing the opposite just to keep our shipbuilders in profit for longer. I despair.
Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Wikimedia Commons.